Lot Pricing in the Metro

For anyone who is an investor or Realtor, 2008 to 2010 has been hard. Property values have plummeted. The buying marketplace was somewhere between skittish and petrified. Lenders panicked. Every deal was difficult.

But I have more than one time thanked my lucky stars that I was not a home builder.

From the period of 2001 to 2008, the US built somewhere between 1.3M and 1.9M new homes with production reaching its peak in middle to late 2007. By 2010, that number had fallen below 400k. From the peak to the trough, the amount of homes built fell by almost 80%.

That is a stunning fall.

What is more stunning is that the amount of new homes built has remained close to the 400k level for the past 3 years. This is amazingly important in that it means we have been adding somewhere between 1M and 1.5M too new homes few for the better part of 3 years. In total, we could be as many as 4M homes short of demand.

Now I don’t think that is anyone suggesting that we are heading for a 4M housing shortage and 30% appreciation in 2012…but I what I do notice is lot prices and availability are changing. When the builders quit building in 2008, there was still a large supply of lots that were developed and un-built upon and even more in the development queue. The excess developed lot inventory (and zoned but undeveloped) owned by builders and developers was effectively given back to the banks and there were VERY few buyers. In effect, lots had no value.

This has changed.

In 2010, builders slowly began to absorb lots. The typical lot in the typical suburban subdivision that had been retailing for $65-90k in 2007 was being offered by banks for as little as $20-30k. Builders with cash (or cash investors) started buying them up. The first to arrive with a check got the best lots…but basically just kept them in inventory.

In 2011, the lot prices crept up slightly and you began to see lots trade for $40 to 50k. A few more homes were built and the foreclosed/bank owned lot inventory fell even further. While the demand for new homes edged up slightly (with some regression back to 2008 levels for months at a time), the overall trend was up.

We now stand at the doorway heading into 2012. Economic news is not positive but it is not negative either. Lot inventory has fallen to some of the lowest levels in anyone’s memory and there are no new lots in production. While it is not prudent to say that we are heading for a housing shortage, it is prudent to say that there will be a quick reaction and correction off of the bottom based on a lack of supply when demand returns to pre-bubble levels. Those who can see it coming will profit

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